Weak Demand for Loans Causes Bendigo Bank Profit to Fall 67%

Bendigo and Adelaide Bank reported on Monday a first-half profit drop of 67 per cent due to weak demand for loans and higher funding costs. Bendigo registered a net profit of $57.9 million in the second half of 2011, down from $173.9 million for the same period in 2010.

For the same six-month period, Bendigo's cash earnings actually rose 0.3 per cent to $162.6 million, but the lender also wrote down intangible assets worth $95.6 million. The lender's cash profit was almost in line with the $162.3 million average forecast of analysts.

Similar to the big four, Bendigo's cost of funding significantly went up for the first half of its financial year, including those sourced from retail term deposits and senior unsecured and secured debt markets, causing a difficult economic outlook for that period. Bendigo Chief Executive Mike Hirst described the previous six months as problematic in terms of funding costs, changing asset mix and demand for credit.

For the second half of 2011, Bendigo's loan portfolio grew only 0.6 per cent to $48.1 billion from the first half of that year. However, business lending arrears increased marginally to 2.2 per cent.

He was not optimistic on the bank's outlook for the next six months due to significant market volatility and revenue challenges which all Australian banks are struggling with.

"The contraction in margin, coupled with slowing credit growth and market sentiment moving investors away from higher margin wealth and equities products, has resulted in flat earnings," Mr Hirst explained.

However, Mr Hirst said Bendigo and Adelaide Bank has the balance sheet strength and flexibility to meet the significant challenge faced by the banking industry and to take advantage of the various opportunities available to the lender.

Last week, the big four reported their quarterly or half-year results with only Commonwealth Bank reporting significant growth of 19 per cent rise in profit. The three others showed slower profit growth due to the rising cost of funding, which prompted the big four to raise interest rates - mostly by 10 basis points - despite the Feb 7 decision by the Reserve Bank of Australia to retain the overnight cash rate at 4.25 per cent.